Ensuring and managing the fiscal space is necessary for sustained government investment in human capital. As human capital complements physical capital in the ‘production’ of GDP, countries that can raise adequate resources for such investments experience higher growth in the long run. This policy brief explores the relationship between fiscal space and investment in the health sector. It also looks at the institutional determinants of fiscal space in the G20 countries during 2005-2021, and establishes that country-specific institutions determine the evolution of the budgetary space. Compared to ‘normal’ years, the positive effects of institutions are more pronounced during crisis years (in our sample, 2009 and 2020). However, the institutions affect different countries differently. The G20 countries vary widely in terms of their historical experience, economic environment, and institutional realities, thus representing a microcosm of the world. As a result, the policy lessons are scalable at a global level.
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